Once the country's biggest department store chain, Debenhams had been hit by a sharp slowdown in sales, high rents and ballooning debt, plus an acrimonious power struggle with billionaire Ashley's Sports Direct.
Administrators were appointed on Tuesday after Ashley's last-ditch bid to rescue the company failed. They sold the group to its creditors including British banks and U.S. hedge funds.
Ashley, the owner of Premier League Newcastle United, had spent tens of millions of pounds building up a 30 percent stake and months trying to wrest control of the business.
He reacted angrily to the move. It was "nothing short of a national scandal", he said, with the board of Debenhams "playing its part through incompetence, or worse, through collusion.
"Whilst these hedge funds look to close a significant number of stores and put thousands of people out of work, as politicians and regulators look on, I will go to the ends of the earth to save as many Debenhams stores and jobs as I can," he said.
Tuesday's deal will keep Debenhams' 166 UK stores trading for the time being, administrators from FTI Consulting said. Suppliers, workers, pension holders and customers will also not be affected.
But they said an existing plan to close 50 underperforming stores and demand rent cuts was "critical" to its survival. The restructuring puts about 4,000 jobs at risk.
Debenhams' descent into administration is another blow to a retail sector already reeling from the collapse of BHS, music store HMV, electronics firm Maplin, department store House of Fraser and cycle shop Evans. The latter two were snapped up by Ashley.
"It is disappointing to reach a conclusion that will result in no value for our equity holders," Chairman Terry Duddy said.
"However, this transaction will allow Debenhams to continue trading as normal, access the funding we need and proceed with executing our turnaround plans whilst deleveraging the group's balance sheet."
In business since 1778, Debenhams has been battling for survival after a consumer shift online and to cheaper outlets left it with too much retail space on struggling high streets, destroying 90 percent of its share value in the past year.
With a flagship store on London's Oxford Street, the group was too slow to adapt.
Its stores - among the largest on Britain's retail map - are burdened with high rents, business rates and staffing levels, while it has had to discount heavily to drive clothing sales.
At the time of its collapse it had debt of up to 720 million pounds and a market valuation of just 22 million pounds. In 2018 it had 19 million customers and 2.9 billion pounds in sales.
Hargreaves Lansdown analyst Laith Khalaf said it had been downhill for the group since it floated on the stock market - for the third time - in 2006.
"We can still expect Debenhams to continue trading, though store closures are inevitable as Debenhams cuts its cloth to fit today's increasingly digital retail environment," he said.
It also has stores in Ireland and owns Denmark's Magasin du Nord.
Debenhams' new owners have put the chain up for sale, so Ashley could still play a role but he would likely need to take on large parts of the retailers' debt, Khalaf said.
Ashley had offered a rescue plan, but with the condition he was appointed chief executive. With tensions increasing between the two sides, Ashley even demanded that Debenhams board members take lie detector tests.
A person familiar with the situation told Reuters that Debenhams feared that if Ashley became CEO he would renege on his financial promise and put it into administration himself, allowing him to select only the stores he wanted to own.
Sports Direct said that, following the administration, it did not intend to make an offer for the company.
(Editing by Keith Weir and John Stonestreet)
By Kate Holton and Paul Sandle